The spoils of a bankrupt company funded with a $249 million grant from President Barack Obama’s stimulus package for alternative energy will go to a Chinese business if the federal government approves the deal.

The Wanxiang Corporation successfully bid last week for the assets of the failed A123 Systems, prompting warnings from both sides of the political aisle that the sale poses a risk to national security.

Lawmakers say that A123’s core intellectual property is used in several contracts worth millions of dollars with the Defense Department to build unmanned aerial and underwater vehicles, power grids, unmanned ground and portable power systems, high-energy lasers and advanced armor.

“That gives us pause and it does concern us,” said Rep. Marsha Blackburn (R-Tenn.), incoming vice chairman of the House Energy and Commerce Committee. “I just think that this is something we don’t want in China’s hands.”

Wanxiang’s purchase price of $256 million does not include the research and development contracts with the military or the sensitive technology that A123 manufactured—lithium-ion batteries for military vehicles and renewable energy. That end of the business has already been sold to Massachusetts-based Navitas Systems for $2.25 million.

But Blackburn says that only a bookkeeping process separated the commercial and government contracting side of the business. “The core technology was used in all of their applications,” Blackburn said.

Warnings from lawmakers

A bipartisan group of senators are urging the Obama administration to carefully consider whether the deal should be approved, and in a letter to Treasury Secretary Timothy Geithner warned how the technology could be employed against the U.S. and that the acquisition “presents considerable risks.”

“If this transaction were permitted to occur, Wanxiang would be in control of the technology used by our soldiers to power the equipment and vehicles they use to complete their missions in the field,” the letter said.

The lawmakers also warned that A123 used the same cutting-edge technology for its military applications in the U.S. electrical grid and telecommunications network.

“Such access could make the U.S. critical infrastructure vulnerable to cyberattack,” the lawmakers said.

The battery maker A123 is one of 36 green companies that were awarded federal dollars from the Energy Department but are now facing bankruptcy or are laying off workers, including Solyndra, which was awarded a $535 million loan. Other troubled companies and loan amounts include $24 million to Evergreen Solar, $69 million to Beacon Power, $1.5 billion for SunPower, and $500,000 to SpectraWatt.

A123’s business failure is blamed in part on a recall of defective car batteries and weak sales of electric cars at Fisker Automotive General Motors Co., which was awarded a $529 million loan.

A123 filed for bankruptcy in October, and on the same day reportedly received an installment payment from the Energy Department for nearly $1 million. The Energy Department announced last week that it would not continue distribution of the grant to the bankrupt A123 beyond the $133 million the company has already received.

Grassley, Thune speak up

Republican Sens. Chuck Grassley of Iowa and John Thune of South Dakota have been leading critics of taxpayer dollars being spent to support A123’s now failed business and its pending sale for pennies on the dollar.

“The president borrowed money from China to pay for his $800 billion stimulus bill, and then gambled these funds away on now-bankrupt green energy ventures,” Thune said. “President Obama’s energy policy has been a win-win for China and a lose-lose for the American taxpayer.”

“In the end, the taxpayers will be left having to repay interest to China for a business that a Chinese company now owns. Given the important national security interests at stake, we expect a full review of the bankruptcy transaction by the Treasury Department,” Thune said.

Grassley criticized the Obama administration for its pre-election assurances that the bankruptcy sale of A123’s government-financed technology would not go to a foreign company.

“This assurance turned out to be false,” Grassley said. “Now, we need to find out why the administration said this, what classified technology will be at risk, and whether the more than $100 million in taxpayer money given to A123 will end up in Wanxiang’s pockets. The review process at the Treasury Department is the last hope for ensuring some regard for U.S. interests.”

Added Sen. Lisa Murkowski (R-Alaska), ranking member of the Senate Energy and Natural Resources Committee: “The administration has repeatedly claimed that so-called green jobs can’t be outsourced. What they neglected to tell us was that ownership can be.”

Treasury Department approval

The Chinese company still needs the approval of the Treasury Department’s Committee on Foreign Investment (CFIUS) in the United States by Jan. 15 to close the deal.

If the deal is rejected, A123 will undergo a second auction.

The Strategic Materials Advisory Council, a group of former military leaders and industrial consultants, has asked Geithner to stop the sale and says they are concerned that Wanxiang will share A123’s technology with the Chinese military.

The council says China has pursued an overt economic strategy of acquiring natural resources and promising new technologies that would create a dominance of the Communist country over an entire supply of the materials and technology.

“Given the need to preserve the integrity of domestic intellectual property and manufacturing crucial to our national defense and at the height of ongoing Chinese attacks on critical infrastructure in the United States, we believe it prudent that CFIUS examine Wanxiang’s bid with the utmost scrutiny,” said Dean Popps, council co-chair.

The council says that allowing Wanxiang to acquire A123 Systems would continue this trend and make the U.S. dependent on an unreliable foreign source for yet another critical defense component.

China already has a near-monopoly on producing rare earth materials that allows it to manipulate the supply for a range of defense and renewable energy products, including nickel-metal hydride battery production.